Equitable Trust Co. v. Denney

• Decision Date: 20 February 1928
• Docket Number: No. 3959.,3959.
• Citation: Equitable Trust Co. v. Denney, 24 F.2d 169 (7th Cir. 1928)
• Parties: EQUITABLE TRUST CO. OF NEW YORK v. DENNEY et al.
• Court: U.S. Court of Appeals — Seventh Circuit

24 F.2d 169 (1928)

EQUITABLE TRUST CO. OF NEW YORK v.DENNEY et al.

No. 3959.

Circuit Court of Appeals, Seventh Circuit.

February 20, 1928.

Wm. H. Thompson, of Indianapolis, Ind., for appellant.

Cassius C. Shirley, of Indianapolis, Ind., for appellees.

Before ALSCHULER and EVANS, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

Appellant, a New York corporation, trustee under deed of trust covering the property of the Union Traction Company of Indiana, brought suit in the District Court for an injunction against the appellees, citizens of Indiana, who are operating in the city of Muncie motor busses upon streets identical with or contiguous to those upon which the traction company, through its receiver, operates its street railway and bus system, under authority from the Indiana officials.The basis for the prayer for injunction was the averment that the appellees have not obtained a certificate of public convenience and necessity from the Public Service Commission of Indiana authorizing their operations.The trust deed of appellant secures a bond issue of $5,000,000.The receiver is operating the properties of the mortgagor under order of the circuit court of Madison county, Indiana.He was originally appointed at the request of common creditors, but later, under a foreclosure bill of the present appellant, he was designated as receiver under the trust deed also.Upon the hearing of an application for temporary injunction in the present suit, the District Court, of its own motion, dismissed the bill of complaint for want of jurisdiction, and the appellees seek to sustain this decree upon the ground that the mortgagor, a citizen of Indiana, is an indispensable party, and upon proper alignment of parties should be joined as partyplaintiff, so that there is no diversity of citizenship to confer jurisdiction upon the federal court, and for the further reason that, in view of the fact that a receiver has been appointed in the state court and is administering the estate upon which appellant has a lien, the appellant may not resort to the federal court for the purpose of seeking relief concerning the res of the estate in the custody of the receiver.

The peculiar and limited jurisdiction of the federal courts, affected as it is by the citizenship of the parties, has resulted in a well-recognized modification of the former rules in chancery practice classifying parties as proper or necessary.Formerly the presence of all those whose appearance was necessary to a determination of the entire controversy was essential to the jurisdiction of the court, and they were included within the class known as necessary parties, while those who had no interest in the litigation between the immediate parties, but had an interest in the subject-matter which could be conveniently adjudicated therein might be included as proper parties.The operation of equity rule 39(old rule 47), however, has resulted in the present well-recognized reclassification, which permits the court at its discretion to proceed, though persons who might otherwise be deemed necessary cannot be made parties because of their absence or other incapability or because their presence would oust the jurisdiction of the court.The courts, however, refuse to proceed without the presence of an indispensable party.SeeEx parte Haggerty (C. C.)124 F. 445;Sioux City Terminal R. & W. Co. v. Trust Co. of N. A. (C. C. A.)82 F. 127; Simpkins, Fed. Prac. (Rev. Ed.)c. 66, pp. 492 to 498, inclusive, and authorities there assembled."An indispensable party is one who has such an interest in the subject-matter of the controversy that a final decree between the parties cannot be made without affecting his interests, or leaving the controversy in such a situation that its final determination may be inconsistent with equity and good conscience."Sioux City Term. R. R. Co. v. Trust Co., supra;Jennings v. U. S. (C. C. A.)264 F. 399, at page 404.

Here the mortgagee has a lien upon the property and franchises of the mortgagor, who quite naturally is interested in the suit, as appellant seeks to enjoin an alleged wrongful interference by third parties with the operation of such properties under said franchises.But the final decree does not necessarily affect the mortgagor's rights.It cannot possibly be injured by the decree sought.A decree in favor of the mortgagee cannot be conceived as inconsistent with equity and good conscience, merely because the mortgagor is not present.Appellant has a substantial, independent interest, belonging to it alone, apparently of great value.The protection of that interest is of no importance to any other person.The fact that a favorable decree may incidentally aid other persons who are not present, does not require a court of equity to refuse to lend its aid to protect that interest against an alleged threatened irreparable injury.Such is the holding of other courts in Ex parte Haggerty (C. C.)124 F. 441;Carter v. Fortney (C. C.)170 F. 463, affirmed in (C. C. A.)203 F. 454;City of Denver v. Mercantile Trust Co. of New York (C. C. A.)201 F. 790;Jennings v. United States (C. C. A.)264 F. 399, and other cases.The decision of this court in Mahon v. Trust Co. (C. C. A.)239 F. 266, is in accord, for there we said: "The right of a mortgagee under certain conditions to bring an injunctional suit to protect its security independently of the mortgagor is thoroughly established.Some of the cases cited above not only recognize such right on the part of the mortgagee, but further hold that the mortgagor is an unnecessary party.Such rule is applied where the suit is brought to restrain threatened injury to the security by trespassers or other tortfeasors, and where the threatened injury is by outsiders, strangers to the affairs and contracts of the mortgagor."

In the case of the City of Denver v. Mercantile Trust Co. (C. C. A.)201 F. 790, a mortgagee of a street railway company brought suit against the city to enjoin the threatened forfeiture of franchise.It was there contended that upon proper alignment of the parties diversity of citizenship would be destroyed by reason of the fact that the street railway company was a citizen of Colorado.The court held that the street railway company was not an indispensable party.It said: "It is claimed by appellants that jurisdiction is based entirely upon diversity of citizenship; that the Denver City Tramway Company, the present owner and in possession of the street railway, was an indispensable party to the action, and, if made a party, its interests being entirely with that of complainant and diverse to that of respondents, it should be classed as a complainant, and hence diversity of citizenship defeated.The Denver City Tramway Company was not, however, made a party to the action, and we think it was not an indispensable party.Complainant was the trustee in the mortgage or trust deed given to secure bonds issued by the street railway company.Its mortgages covered, not only the physical properties of the tramway company, but its franchise and contract rights, and it certainly had a standing in a court of equity to protect such rights...